Summary of the week
This week covered many of the basic economic concepts that help us understand the impact of globalisation - both on nations as a whole and the people within nations.
We first looked at the fundamental economics of trade –comparative advantage. Using the example of smuggling, we saw how exchanging goods internationally can be a win-win for both sides whenever the nations have different relative prices domestically. This explains why countries trade – basically because it is profitable to both parties to do so – and it explains why nations export some goods but import other goods. In essence, states export the goods they are relatively efficient at producing, and import goods that foreigners are relatively efficient at producing. The example also explained the logic of the somewhat counterintuitive result that this exchange is win-win.
But trade causes pains as well as gains, so we explored the basic economic logic of which parties inside states tend to gain and which tend to lose.
Finally, we looked at how lower trade costs tend tp foster clustering of economic activity in regions where there is already a lot of economic activity. The result is that globalisation is often associated with an increase in the geographic concentration of industry.
With these tools in our intellectual toolbelt, we are ready to tackle the first of next week’s big questions: what are the sources of anti-globalisation?
We will also look at the future of globalisation and how we should prepare for it. I hope you’ll join me next week as we continue this learning journey!
© Richard E. Baldwin